Following the slump in total net revenues,
The Goldman Sachs Group, Inc.
) first-quarter 2014 earnings per share came in at $4.02,
significantly below the year-ago figure of $4.29. However, it
surpassed the Zacks Consensus Estimate of $3.43.
Shares of Goldman increased more than 2% in the pre-market
session, indicating that investors have been bullish on the
results. The price reaction during the full trading session will
give a fair idea whether Goldman has been able to meet market
Lower top-line performance was a negative for the quarter.
However, the company's robust financial advisory revenues and
steady capital deployment activities were the positives. Further,
decreased expenses exhibited prudent expense management.
Net income applicable to common shareholders in the quarter was
$1.9 billion, declining 11% from $2.2 billion recorded in the
Performance in Detail
Goldman's net revenue declined 8% year over year to $9.3 billion
in the quarter under review. Revenues were mainly impeded by
lower institutional client services revenues along with reduced
investing and lending revenues. However, revenues outpaced the
Zacks Consensus Estimate of $8.9 billion.
Quarterly revenues, as per business segments, are as follows:
division generated revenues of $1.8 billion, up 13% year over
year. Results reflected higher-than-expected financial advisory
revenues. Moreover, revenues from the underwriting business (up
1% year over year) were on the upswing, driven by elevated
revenues in equity underwriting, partially offset by lower
revenues from debt underwriting.
division generated revenues of $1.6 billion, up 20% year over
year. Results reflected increased management and other fees along
with higher transaction revenues and incentive fees.
Investing and Lending
division booked revenues of $1.5 billion in the quarter, down 26%
year over year. Results included net gains of $702 million from
investments in equities, net interest income and net gains of
$597 million from debt securities and loans coupled with other
net revenues of $230 million.
Institutional Client Services
division recorded revenues of $4.4 billion, down 13% year over
year. Results were hindered by lower revenues in Fixed Income,
Currency and Commodities Client Execution (FICC), marked by
decreased net revenues primarily in mortgages, followed by
currencies, credit products along with interest rate products.
A fall in equity trading revenues (down 17% year over year) was
recorded, mainly due to lower net revenues in equities client
execution. Notably, excluding net revenues associated with
Americas reinsurance business, which was sold by Goldman in
second-quarter 2013, net revenues in equities were down 6% year
Operating expenses descended 6% to $6.3 billion compared with the
prior-year quarter. Expenses decreased largely due to lower
compensation and employee benefits expense and reduced
Non-compensation expenses were $2.3 billion in the quarter, down
3% year over year, primarily due to decline in insurance reserves
reflecting the sale of Americas reinsurance business and reduced
Evaluation of Capital
Goldman exhibited a strong capital position in the reported
quarter. As of Mar 31, 2014, the company's Tier 1 capital ratio
was 16.3% and Common Equity Tier 1 ratio was 14.6%, reflecting
the amended definition of regulatory capital and the transitional
provisions which became effective Jan 1, 2014.
In first-quarter 2014, Goldman completed an adequate parallel run
under the revised capital framework. Therefore, beginning with
the second-quarter 2014, the company's capital ratios will be
calculated under the Federal Reserve's Basel III Advanced
approach. As of Mar 31, 2014, Common Equity Tier 1 ratio
calculated under this approach was 11.3%.
Return on average common shareholders' equity, on an annualized
basis, was 10.9% in the reported quarter compared with 12.7% in
the prior quarter. Goldman's book value per share increased 1% to
$154.69, while tangible book value per share rose 1% to $145.04,
as compared with the end of 2013.
Capital Deployment Update
During first-quarter 2014, Goldman repurchased 10.3 million
shares of its common stock at an average price per share of
$166.58 and a total cost of $1.72 billion. Remaining share
authorization under Goldman's existing repurchase program stands
at 46.9 million shares.
We expect Goldman to benefit from its well-managed global
franchise, strong capital base and recent investments in the near
future. Further, the company is gaining on cost-control measures
and its stress test clearance with the 2014 capital plan approval
exhibits financial strength. However, regulatory issues,
including lawsuits and the lower top line remain concerns.
Though there are concerns related to the impact of legal issues
and its global exposure, equity-centric activities in the U.S.
are expected to support Goldman's results in the upcoming
quarters with continued recovery in the capital markets.
An investor with an appetite to absorb risks related to the
market volatility should not be disappointed with an investment
in Goldman over the long haul. Goldman's fundamentals remain
highly promising with a diverse business model and strong balance
Moreover, Goldman is justly considered to be a value investment
due to its steady dividend-yielding nature. This banking major
currently carries a Zacks Rank #3 (Hold).
Performances of Other Large Wall Street Firms
The first-quarter earnings season kick started with Wall Street
biggies such as
Wells Fargo & Company
JPMorgan Chase & Co.
). Wells Fargo achieved the seventeenth consecutive quarter of
earnings growth by reporting earnings of $1.05 per share. Results
improved from $1.00 earned in the prior quarter and 92 cents in
the year-ago quarter. Also, the results beat the Zacks Consensus
Estimate by 8 cents.
However, JPMorgan failed to override the tough backdrop that
banks have been enduring since the year started and delivered a
negative earnings surprise of 9.2%. The banking giant came out
with earnings of $1.28 per share, missing the Zacks Consensus
Estimate of $1.41 by a wide margin. This is also a massive
deterioration from the year-ago number of $1.59.
Bank of America Corporation
) lost its earnings momentum to a tough industry backdrop and
reported a loss of 5 cents in the first quarter. This was a
significant miss from the Zacks Consensus Estimate of earnings of
5 cents and also compares unfavorably with 10 cents earned in the
Litigation expense and related legal reserves previously
announced by the company were primarily responsible for such a
disappointing outcome. Moreover, lack of top-line improvement,
higher provision and an unfavorable expense trend pressured the
BANK OF AMER CP (BAC): Free Stock Analysis
GOLDMAN SACHS (GS): Free Stock Analysis
JPMORGAN CHASE (JPM): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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